While cautious to highlight the uncertainty regarding any currency valuation model, Jim O'Neill lays out his case why the yuan is now pegged near parity in his latest Global Economics Weekly:

Jim O'Neill @ Goldman [Emphasis added] :

Our GSDEER model used to show that the CNY was undervalued but it is not any longer. We discussed our estimated CNY results in the box earlier. It should not be forgotten that the CNY has risen by close to 20% on a trade-weighted basis in real terms, which has removed the undervaluation we estimated.

Goldman: There is tentative evidence of a significant change in China’s trade patterns since the credit crisis reached its maximum point with the collapse of Lehman Brothers. Import growth has made a spectacular recovery both in absolute terms, and relative to exports. As some Chinese policymakers have recently suggested, it is not inconceivable that China might be close to the end of trade surpluses.

This doesn't mean that the yuan can't appreciate further, however.

Goldman: China probably has to allow some form of appreciation and/or more volatility of the exchange rate to discourage speculative inflows. This is behind our current forecast that China will allow a modest 5% renewed appreciation of the CNY between 6 and 12 months into the future. As discussed by our Asian economists, we are not entirely confident about this forecast, either the magnitude or the timing.

Personally, we're always skeptical of currency models. But at the same time China's shrinking trade surplus seems to say it all, as simple-minded as that may sound. If the day comes that China doesn't have a trade surplus then it will be pretty hard to argue that the yuan is undervalued, no matter what other models say. Furthermore, if the yuan is near parity then that's a good thing. It means China could perhaps get away with a small yuan hike and without the threat of snowballing speculative inflows betting on even further appreciation.

In any case, here's a glimpse of Mr. O'Neill's summary of yuan appreciation winners and losers: